Income Taxes

12 Months Ended

Dec. 29, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesThe components of the provision (benefit) for income taxes are as follows for 2020, 2019 and 2018 (in thousands):

	2020		2019		2018
Current tax provision:
Federal	$	—	$	—	$	—
State	44		36		35
	44		36		35
Deferred tax provision (benefit):
Federal	30		52		(202)
State	10		16		(81)
	40		68		(283)
Total provision (benefit) for income taxes	$	84	$	104	$	(248)

The reconciliation of income tax provision (benefit) that would result from applying the federal statutory rate to pre-tax income as shown in the accompanying Consolidated Statements of Operations is as follows for 2020, 2019 and 2018 (in thousands):

	2020			2019			2018
Federal income tax (benefit) provision at federal rate	$	(4,867)		$	368		$	(1,825)
State income tax (benefit) provision, net of federal tax	(1,191)			168			(623)
Other permanent differences	288			327			70
Tax credits	(390)			(408)			(602)
Change in valuation allowance	6,104			(913)			2,600
Tax rate change	(25)			23			(248)
Deferred tax asset write-off	157			566			212
Other items, net	8			(27)			168
Provision (benefit) for income taxes	$	84		$	104		$	(248)
Effective income tax rate	(0.4)		%	5.9		%	2.9		%

The Company’s total deferred tax assets and liabilities are as follows (in thousands):

	2020		2019
Deferred tax assets	$	111,831	$	104,931
Deferred tax liabilities	(66,551)		(65,715)
Total deferred tax assets	45,280		39,216
Valuation allowance	(45,520)		(39,416)
Net deferred tax liabilities	$	(240)	$	(200)

Deferred income taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Deferred income tax liabilities and assets consist of the following (in thousands):

	2020		2019
Deferred tax assets (liabilities):
Loss carry forwards	$	37,852	$	30,255
Deferred franchise revenue	1,506		909
Property, equipment and intangible assets	(11,063)		(8,242)
Stock-based compensation	1,384		1,376
Tax credit carry forwards	4,326		3,936
Inventory smallwares	(1,740)		(1,748)
Other accrued expenses	1,861		533
Operating lease assets	(53,748)		(55,725)
Operating lease liabilities	63,799		67,166
Other	1,103		756
Total net deferred tax assets	45,280		39,216
Valuation allowance	(45,520)		(39,416)
Net deferred tax liabilities	$	(240)	$	(200)

For the year ended December 29, 2020, the Company determined that it was appropriate to maintain a valuation allowance of $45.5 million against U.S. deferred tax assets due to uncertainty regarding the realizability of future tax benefits. The valuation allowance is recorded against net deferred tax assets, exclusive of indefinite-lived intangibles. During 2018, 2019 and 2020, the Company generated indefinite-lived net operating loss (“NOL”) carry forwards. The Company will maintain the remaining valuation allowance until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit to the effective tax rate.

As of December 29, 2020 and December 31, 2019, NOL carry forwards for federal income tax purposes of approximately $145.7 million and $115.5 million, respectively, were available to offset future taxable income. Of these amounts, $106.8 million is available to offset future taxable income through 2037. A federal NOL of $38.9 million created during the year ending January 1, 2019, December 31, 2019 and December 29, 2020 can be carried forward indefinitely, but can only offset 80% of future taxable income. The Internal Revenue Code Section 382 generally limits the utilization of NOLs when there is an ownership change. The Company completed an analysis under Section 382 through December 31, 2019 and determined that there isn’t a current year limitation on utilization of tax attributes. Prior to the utilization of NOLs in the future, the Company will determine whether there are any limitations under Section 382. If such a limitation exists, it is possible that a portion of the NOLs may not be available for use before expiration.

Uncertain tax positions are recognized if it is more likely than not that the Company will be able to sustain the tax position taken, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.

There were no uncertain tax positions for the years ended December 29, 2020 or December 31, 2019. For federal and state income tax purposes, the Company’s 2016 through 2019 tax years remain open for examination by the authorities under the normal three year statute of limitations. Should the Company utilize any of its U.S. or state NOLs, the tax year to which the original loss relates will remain open to examination.